Pension Linked Emergency Savings Accounts, aka PLESAs, were made possible by a provision in the SECURE 2.0 Act, which became effective at the start of 2024. To help plan sponsors understand and correctly implement PLESAs, the Department of Labor has highlighted key points, including the $2,500 limit, in an FAQ.
Here’s The Deal on PLESAs
Quick access to cash in the event of an emergency is a top concern for many employees, and the onset of the COVID-19 pandemic certainly flashed the spotlight on the importance of having money saved “for a rainy day.” Accordingly, SECURE 2.0 enabled PLESAs in Section 127, allowing participants to withdraw up to $2,500 from their accounts, “at their own discretion without paying a 10% early withdrawal fee.” In response to the need for plan sponsor guidance, the DOL’s FAQ for PLESAs breaks down how to appropriately administer this new way to help employees cope with their financial challenges. Based on the DOL information, retirement industry experts offer these key points on PLESAs, which are sometimes also referred to as sidecar accounts:
- Section 127… is intended to increase in-plan liquidity for unforeseen expenses. PLESAs are an optional feature; Section 115 of SECURE 2.0 also allows for one penalty-free withdrawal of up to $1,000 per year from a 401(k) account for emergencies.
- Participants are not required to prove a hardship, or even be experiencing one, to take money from a PLESA; withdrawals may be taken at “the discretion of the participant.”
- If a participant is eligible for a qualified plan offered by the employer and is not a highly compensated employee, then the participant is eligible for a PLESA if the employer offers one. The threshold to qualify as “highly compensated” is $155,000 for 2024.
- Plans may automatically enroll participants in a PLESA, but they cannot mandate their participation and must provide at least 30 days in which the participant may opt out…..The automatic percentage may not exceed 3% of the participant’s compensation.
Plan sponsors implementing a PLESA are allowed to charge “reasonable fees for recordkeeping and administration…, but these fees must be in keeping with fiduciary requirements under the Employee Retirement Income Security Act.” As to the types of investments that are acceptable for PLESAs, DOL guidance notes: A sponsor may use cash, an interest-bearing account or “an investment product designed to maintain over the term of the investment the dollar value that is equal to the amount invested in the product and preserve principal and provide a reasonable rate of return, whether or not such return is guaranteed, consistent with the need for liquidity.”
Now’s The Time
With ever more to do toward the financial well being of employees–and ERISA compliance–this is a critical time for plan sponsors to reduce their fiduciary risks via liability insurance. Specifically, armed with Colonial’s affordable liability coverage, if you face claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll be protected with defense costs and penalty limits up to $1,000,000.
At Colonial, a whole year of Fiduciary Liability Insurance comes to less than a few dollars a day, and we even include Cyber Liability coverage to further protect the business and retirement plan. We also offer locked in rates with our multi-year packages, giving you an efficient and effective way to remain buttoned up.
Serving customers since 1930, Colonial Surety is the trusted source for the pension industry to secure legally required ERISA bonds, fiduciary liability insurance and cyber-liability insurance. We help safeguard plan sponsors, pension professionals and financial advisors — and keep their businesses compliant — with pain-free, efficient, and friendly service every time. Colonial Surety Company is rated “A Excellent” by A.M. Best Company, US Treasury listed and in business all across the country.